Unemployment: a brief history

My chart below puts today's unemployment data into long-term historical perspective. Using Bank of England data, it shows the unemployment rate since 1855.

What stands out here is that a highish rate of joblessness is quite normal. It is the 1945-73 period of full employment (for men!) that is historically odd, not today's joblessness. In fact, between 1855 and 1939 the unemployment rate averaged 5.1% - higher than the claimant count rate is now.

I reckon there are several important messages here:

1. Marxists are right. From the point of view of workers, capitalism tends to stagnation, in the sense of being unable to provide work for all. Michal Kalecki was spot on: "unemployment is an integral part of the 'normal' capitalist system."

2. The idea that free market policies can generate sustained full employment lacks any historical foundation, unless you want to argue that there were severe labour market regulations that caused mass unemployment in the 19th century; "Damn those Factory Acts!"

3.Claims that the welfare state has created a culture of dependency in which folk don't want to work look silly. High unemployment was the norm in the pre-welfare state era.

4. Unemployment is not merely a cyclical problem remediable merely by counter-cyclical macroeconomic policies. It is more permanent than that.

5. If we want full employment - and we should - we need something like the post-war settlement. Which poses the question of whether this is feasible. Personally, I fear it's not; the post-war reconstruction and Fordist manufacturing which created ample jobs for the unskilled are gone for good.

6. If full employment is impossible under capitalism, the question arises: how can we mitigate the misery it causes? I'd suggest active labour market policies that do not stigmatize job-seekers, and a more generous welfare system (clue - basic income.) But I don't expect such suggestions to be heeded.

Help for right-wingers: the data are consistent with the idea that there are lots of people who are unemployable, but that this has always been so, except when demand for the unskilled was very high in the post-war era.  

Comments

[Anonymous]

Attaboy Chris! Great Post.

[Luis Enrique]

we can spend money on nuclear weapons or Olympic games - if we wanted to we could spend money on reducing unemployment, by which I mean, in effect, accepting a reduction in "efficiency" in order to enjoy an increase in employment.

I'm sure trying to reduce the quantity of people who are "unemployable" would help, but I don't really see the objection to some straight-forward state-run job creations schemes. The country is a dump, especially in poorer neighbourhoods, why not start by sprucing up the environment we live in. I'm not saying there are no problems with such ideas, I'm suggesting there are net benefits to be had.

[Ralph Musgrave]

Abolishing unemployment is simple in the following sense. Tell the unemployed their benefits are henceforth conditional on joining a job creation scheme as suggested by Louis Enrique. Those refusing are not counted as unemployed on the grounds that they’ve refused work. Hey presto: unemployment vanishes.

But that would involve some very silly and unproductive forms of work. So are there theoretical reasons for thinking the idea can be extended to the private sector? I.e. would the above idea be helped by having some of the temporary subsidised jobs in the private sector?

I’ve gone into this question and I think the answer is “yes”:

http://mpra.ub.uni-muenchen.de/19094/

[Jim]

Thats comparing apples and oranges. We now have as many people on other benefits (and not in work) as on the dole, which would not have been the case 50 years ago, let alone 100. You need to compare the numbers of working age collecting benefits of all kinds over the last 150 years, not just those collecting the dole.

[FromArseToElbow]

Gazing open-mouthed at Nick Buckles before the Home Affairs Committee yesterday, it struck me that if we think about unemployment as the unequal distribution of work, then the achievement of full employment, through redistribution, might best start at the top.

Rather than create public works jobs for the chronically unemployed, why not simply mandate a maximum working week for executives of 20 hours (a modern Factory Act), in effect creating a job-share (with wages and bonuses split 50/50). This has a number of immediate benefits:

- Incompetence is less likely as you have the advantage of a second opinion.
- The evidence seems to show a net increase in productivity for job-shares, despite increased overheads.
- We'd increase tax revenue due to double NICs.
- These highly-talented people would have more time for charity and other social investment.

The working population is about 30 million and the unemployed about 2.6 million. Of that 30m, about 15% (4.5m) is classed as higher managerial and professional roles.

If we just took the top-half of this tranche (by salary), this would lead to the creation of over 2m jobs, all at above-median earings. As people shuffled up from the next tranche down, this would lead to a knock-on effect and demand for labour at the bottom end of the scale.

Of course, there would be claims that we simply don't have enough talent to go round, but I doubt there would be a lack of candidates in any organisation. I'm sure there are others in G4S, for example, champing at the bit to take over from Nick Buckles.

[David]

"6. If full employment is impossible under capitalism, the question arises: how can we mitigate the misery it causes? I'd suggest active labour market policies that do not stigmatize job-seekers, and a more generous welfare system (clue - basic income.) But I don't expect such suggestions to be heeded."

I don't like the idea of basic income. It's like rents, except instead these rents are for the poor rather then the wealthy (whom gain rents through market power and speculation).

In particular, there is plenty of work to be done, even in developed economies; Rather I opine we should drop the stigma against state-owned industry and coordination.

[Andos]

The Modern Money Theory school of economics would suggest that achieving full employment IS possible under capitalism, it just requires the Government to utilise its fiat currency to be a real employer of last resort.

Or as Bill Mitchell would put it, to create a buffer-stock of employed people (instead of unemployed people as is the case now) Governments should implement a "Job Guarantee".
http://e1.newcastle.edu.au/coffee/job_guarantee/JobGuarantee.cfm

[Laban Tall]

"Claims that the welfare state has created a culture of dependency in which folk don't want to work look silly. High unemployment was the norm in the pre-welfare state era."

The latter in no way implies the former.

"there are lots of people who are unemployable, but that this has always been so, except when demand for the unskilled was very high"

i.e. "unemployable" is not just an attribute of the individual unemployed person but depends on the market circumstances - I know you know this, just spelling it out.

I'd love it if someone could dig into the way the stats are compiled, and see if 1855 unemployment is the same thing as 2012 unemployment (for example, what of the working-age population who are economically inactive?), and how the unemployed of 1855 survived in a "pre-welfare" state - were they all on (local government-backed) Parish Relief? Is that in the report I wonder?

Help for left-wingers: it's not the right who are under the illusion that the post-war settlement is the natural order of things.

[Neil]

Interesting that the 1950s education system appears to have pumped out a steady flow of unemployables. Who'd have thought?

[Zorblog]

This post is the perfect example that shows that economics is the most relevant when it is the most simple.

It also highlights the importance of historical observation, especially observation of the 19th century, when the economy was more simple (which could be a strong argument in the micro-foundations debate).

I'm not too sure of what follows, but I believe that the Dutch partly solved their unemployment problem at the end of the 90s by shifting the unemployed to the disabled benefit scheme (and if I'm right, this boosted the Dutch economy).
Next to historical observations, cross-border comparisons may be the next most useful tool in economics.

[RF_McCarthy]

Seen this:

http://tubedubber.com/#46EC_vwh1jo:AjI2J2SQ528:0:100:0:0:1

When it is cheaper for capitalists to build terrifying robots to butcher a ham than employ men with knives we are truly screwed.

(and yes the abbatoir does have rotating knives and probably would do an excellent job of slaughtering one's tenants...)

[Account Deleted]

You could check out Morgan Warstler's idea of auctioning the unemployed. It seems that it is better structured than other Basic income programs and helps with Kirznerian / Hayekian discovery.

http://modeledbehavior.com/2012/04/20/the-ebay-job-auction-and-guaranteed-minimum-income-program/

[Bialik]

Nothing to disagree with there.

[Bialik]

Laban, try Beveridge's work of 1909 etc. I think he was the first person to try and understand unemployment through research. When administering a relief fund for the unemployed he, unusually for then and now, followed up the recipients 6 months later to see how they'd fared since. He generally found their situation had not improved.

[Bialik]

Ralph, how many of us salaried folk can say that we're engaged in work that isn't silly and unproductive? I look around me and I can't see any, excluding the emergency services and teaching literacy and numeracy (the rest you can learn yourself).

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